Independent Brewer Wants Out of Wholesaler Controls

Legislation would raise limits on how much independents can distribute on their own

WHITSETT — Bill Sherrill feels like he has an uphill battle in an effort to continue self-distributing the beer he brews at Red Oak Brewery in Guilford County.

He chooses to hire people to distribute his beer instead of going through a distributor. But under current state law, that option would not be available to him once he tops 25,000 barrels of beer per year.

“I’ve invested $10.5 million in this place,” Sherrill said. “I just invested $500,000 in tanks.” Those tanks, Sherrill said, would lead to the brewery exceeding the 25,000-barrel limit. According to Sherrill, once he reaches that cap, every drop he brews — not just the first 25,000 barrels — would have to be handled by a separate distributor.

Sherrill believes he’s fighting against a powerful lobbying group in the N.C. Beer & Wine Wholesalers Association. He’s tried to get the cap raised in past years, but his efforts have gotten nowhere.

Indeed, bills have been introduced in the last three legislative sessions to increase the cap to between 60,000 barrels and 100,000 barrels.

Sherrill, who employs 22 people, says he wants to keep controls on the beer once it leaves his brewery until it gets to the retailer. He doesn’t pasteurize his beer or put preservatives in it, so it’s important that his beer stay refrigerated.

“If you don’t keep it cold, it will go bad quick,” Sherrill said. Sherrill said that a contract he would have to sign with a wholesale distributor “is prohibitive.”

Sherrill said he’s even pulled his beer out of some sporting venues because it wasn’t refrigerated properly.

This year, Rep. Pricey Harrison, D-Guilford, who has sponsored similar bills in the past, is taking up his cause. She has introduced House Bill 781, which would raise the cap to 60,000 barrels a year.

“It seems to be common sense that if you want to distribute your own product, you ought to be able to,” Harrison said.

Harrison has sponsored similar bills in previous legislative sessions. She said the last time her bill was considered in committee was 2010, when she eventually removed it from consideration because it had no chance of passing.

Tim Kent, executive director of the N.C. Beer and Wine Wholesalers Association, said the law is in place for good reason.

“The three-tier system promotes a fair marketplace that cannot be dominated either by mega-brewers or big-box retailers,” Kent said of the process of getting beer from the brewer to the retailer.

He said the system where the brewer gets beer from the brewery to the retailer through a wholesale distributor helps promote product variety, providing a buffer between breweries and the retailers.

“Alcohol is a highly regulated product, and for good reason,” Kent continued. “It’s highly regulated because if it’s misused and not traced properly, the consumer is placed at risk.”

Kent said that in previous years the legislation to increase the self-distribution cap has failed because beer distributors have been able to convince legislators that the current system works well. He said that the bill’s chances of advancing this year, without the support of the Republican leadership, “are minimal at best.”

He said that at least 16 states in the country allow no self-distribution. “By comparison, we have a fairly relaxed system of distribution,” Kent said.

Kent said the reason the 25,000-barrel annual limit was put in place was to give “incubator companies” a chance to get started.

Kent also said distributors are prepared to handle Red Oak’s brews. “Mr. Sherrill does not have a product that is unique to brewing,” Kent said. Wholesale distributors have refrigerated warehouses and they use refrigerated trucks to transport beer to market, he said.

Erik Lars Myers, owner of Mystery Brewing Co. in Hillsborough, said he used to self-distribute, but now uses a wholesale distributor to get beer he brews to market. He said he favors the bill.

“I think they both are very important options for breweries,” Myers said. “I do think that people should be able to self-distribute to an unlimited cap.”

Myers said most smaller breweries likely would choose not to self-distribute as they got larger.

“I don’t think this is nearly as threatening to the wholesalers as they think it is,” Myers said.

However, Myers said if a brewery has the resources and the desire, then it should be allowed to self distribute. Not allowing them to do so punishes success, he said.

Myers said about half of the 70-plus craft beer breweries in the state self-distribute.

Harrison said that she thinks the current situation is anti-competitive.

“The three-tiered system that requires a distributor just doesn’t make sense to me,” Harrison said. “It confounds me that an individual isn’t allowed to distribute his own product.”

Barry Smith (@Barry_Smith) is an associate editor of Caroilna Journal.